Author Topic: RRSP-TFSA-NR FIRE WR Plan?  (Read 8157 times)

Goldielocks

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Re: RRSP-TFSA-NR FIRE WR Plan?
« Reply #50 on: November 19, 2017, 08:58:30 PM »
My viewpoint -- I treat all my accounts as one single asset allocation, so sequence of returns will impact it nearly identically depending on where I pull money from.

It won't be identical unless taxes don't constitute a significant portion of your annual outgoing cash flow. If you "spend" say $5K/yr more initially on taxes for the first 10yrs. Your sequence of returns is higher than if you don't. How you withdraw your money will determine the taxes owed in the early years and the later years allowing you to pay more or less.

The downside is that you might pay more taxes overall, but we haven't nailed this down as well due to the difficulty of calculating it. It does seem apparent that paying more taxes only happens if your investments do very well in which case you may not be fussed about that since you'll have more money than you need.

The benefit of this approach is that it requires no changes to your FIRE spending. Simply a different approach to which accounts you pull money from.

If you are interested in the question go through the various calculations earlier in this thread. Until I ran some numbers it wasn't as clear to me how this approach would work.

I see, yes.

The answer that is taught in the CFP manual, when you have at least 20 years to invest, is to leave the investment in the tax sheltered accounts as long as possible.  Use taxable first, then RRSPs (in moderation), then TFSA's last.   

TFSA's touched last because this allows you to pull lumpy sums into any year, as it is needed, which more than pays off for that one occurance, versus any tax reduction scenario, IMO. 

Money that remains in the RRSP account -- let's imagine you could pay 15% tax now, or 28% tax 20 years in future when you withdraw a larger amount.   You would need to earn more than 3.6%/yr  interest over 20 years, to make leaving it in the RRSP pay better than the lower tax rate today.   Pretty low hurdle to beat, so leaving it in the RRSP is usually much better.

The next question comes if you are leaving it in there for less than 15 years.. or if you would have a exceptionally low RRSP marginal tax rate.. (eg., 6% because you have zero income this year and will only pull $20k) . Now it may make sense to drain some of the RRSP amounts earlier... the investment rate over 15 years needs to be much higher.
« Last Edit: November 19, 2017, 09:01:03 PM by Goldielocks »

Joan-eh?

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Re: RRSP-TFSA-NR FIRE WR Plan?
« Reply #51 on: September 17, 2018, 05:14:01 PM »
HI RichMoose. Have you written about this elsewhere? if yes, would you kindly DM me a link?

Estimated account values at 50 [end 2019]:

- RRSP = $737K
- TFSA = $85K
- NR = $116K 100% VCN 2.25% [12 month trailing yield]
- Total = $938K

I plan to remain in BC and travel from there. No specific plans to work, but I am currently self-employed as a consultant and my business deductions are ~$14K - $20K/yr so I could earn that much and not see much change in my taxable income.
I believe you would be best to start drawing from your RRSP as soon as you can. Even if it's only half of your income needs, you need to halt the big growth of that account and preferably preserve growth in the TFSA as it's never taxed.

Drawing from your better tax accounts will allow you about 6 years of virtually tax free living. The issue is that your RRSP will grow to $1M+ during that period. At age 56, you only have a few years left before you start collecting CPP & OAS, both of which you are best to take as early as possible. With CPP at 60, you could have $7,000 a year in fully taxed income. At 65, add another $6,800 for OAS. It would be very realistic to have a tax rate of 20% or higher at 71 when minimum withdrawals kick in. In effect, reducing tax rates early will end up costing you in the long run and high mandatory RRIF withdrawal rates on your only remaining retirement account could hurt your retirement success probability by the percent or two you might gain from the initial low spending.

Ideally, you want the TFSA to grow as long as possible to offset the income provided by CPP & OAS and reducing the RRIF hit. At 70, you could see a TFSA at $250,000 with no new contributions from 50-70.

It's the curse of the RRSP!

Lews Therin

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Re: RRSP-TFSA-NR FIRE WR Plan?
« Reply #52 on: September 17, 2018, 05:25:34 PM »
What are you looking for in detail joan? There's a lot of different options depending of your situation.

RichMoose

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Re: RRSP-TFSA-NR FIRE WR Plan?
« Reply #53 on: September 17, 2018, 08:12:34 PM »
HI RichMoose. Have you written about this elsewhere? if yes, would you kindly DM me a link?
I shared this opinion on RC's situation specifically because he's very RRSP heavy compared with other accounts. Plus there are other personal factors like age, the business deductions, and his spending level.

I have quite a few RRSP posts on my blog, just go to the Must Read Posts page and scroll down to RRSP.

Lews Therin

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Re: RRSP-TFSA-NR FIRE WR Plan?
« Reply #54 on: September 30, 2018, 07:10:20 AM »
Easiest principal: You want to pull it all out, but in small increments if possible. If you have less years left then you pull larger amounts.

If you have 7 decades, you pull it out at 0% tax and no more :D

My own situation is 100k RRSP with 3 decades to empty it. I don't plan on pulling out more than 10-12k per year.

Goldielocks

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Re: RRSP-TFSA-NR FIRE WR Plan?
« Reply #55 on: October 07, 2018, 11:11:07 PM »
What are you looking for in detail joan? There's a lot of different options depending of your situation.

I suspect I need to create another convoluted spreadsheet figuring the withdrawal and taxes, then transferring to TFSA. 

Are there certain principles that hold true I wonder.  Like has someone figured out: don't have over 2 mil in RRSP at age 60 or something like that,

I just submitted my next seminar topic:  "Can you avoid the hidden Canadian Estate Tax?".  We will see if the facility wants to offer it.

Namely, the rule is "do not die with a large RRSP and no spouse".    Because we don't know when we are going to die, to me that means that you work hard to bring down your RRSP into non-reg investments starting by age 60.  Even if you pay a bit more tax.  Compound interest on tax free growth is less impactful at under 20 years, and the death tax rate can be as much as 50% if your RRSP is large.

On the other hand, when you are dead, you may no longer care what your tax rate is, but when you are alive you may like the flexibiity that a (slightly?  Somewhat? ) larger RRSP provides.

Goldielocks

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Re: RRSP-TFSA-NR FIRE WR Plan?
« Reply #56 on: February 08, 2020, 09:47:40 PM »
Missing -- the calculation for minimum withdrawals.

a)  Mandatory starting at age 72
b)  Calculation for mandatory withdrawal starts as a small % and increases, with the statistical aim that you have emptied it by age 90.  Age 72 = 5.4%, Age 85 = 8.08% 
 b2)You can "transfer in kind" to TFSA  or other account if you want (but pay the taxes in current year) when you withdraw from your RRIF.
c) Clawback starts at 77k, but you still have some buffer of increasing clawback to the max, full clawback at $122.8k
d) That is PER PERSON income.  If you are a couple, $150k in income a year is a lot.  Maybe there are other problems to worry about.  Also, income splitting levels out your pension income if you are a couple, which helps.
e) Withdrawals from TFSA and increases are tax free, later when you take them.
f) You can delay CPP and OAS to age 72.  During the years before that, and once you FIRE early, start to draw down the RRSP aggressively and put $'s into TFSA and non-reg investments.  You can even withdraw $100k/yr in this time, and the only "consequence" is your top tax margin, but because you have no OAS, there is no clawback to worry about.

Non-Reg investment withdrawls are only a small part considered income compared to RRSPs.   You could start to invest your non-registered in something (rentals) that will create tax losses in your early years of investment, in return for larger capital returns later (when you have less RRSP to pull out).

-- Did I misunderstand your question? --

ASSUME you have $1.5 million in your RRSP, per person, at age 55.

Age 55-72, withdraw $100k/yr  (as only source of income). These are FIRE years.
Defer CPP and OAS
At age 72, create RRIF, the value of the account is assumed to now be $552k in today's $'s.  (Assumes 7% average return, minus 3% for inflation)
At age 72 take deferred CPP and OAS.  These are now at close to 36% premimum for deferral, so $21k x 1.36 = $28.5k
Withdraw up to 8% of the fund value each year (minimums) = $44k
Total income in today's dollars at age 85 (with 8% withdrawal) is approximately $72.5k.. leaving some room for non-registered investements to earn some income / capital gains rate / dividends.

With this method, you can see that you can get to age 90, barring any super duper fantastic investment years, without paying a lot of claw back.

-------------------
Another alternative, after age 72, is to intentionally generate full claw back every 3-4 years, and you withdraw excess amounts from your RRIF (e.g., $150k? $200k?), intentionally to draw down the RRIF faster. 

After all, once the full claw back is in place, you don't pay it on the next dollar.